As a “tsunami” of baby boomers move towards retirement, brokers need to have a firm exit strategy in place or risk losing out.
As a “tsunami” of baby boomers move towards retirement, brokerages need to have a firm exit strategy in place or risk losing out, says Andrew Graham, national head of business solutions at RSM Bird Cameron.
According to RSM Bird Cameron’s latest thinkBIG survey, the number of SME business owners with a plan to exit their business has more than doubled in the last year, currently sitting on 44%.
“What we’ve got is a tsunami of baby boomers coming through looking to exit their business at about the same time,” says Graham.
This surge in sales puts a huge amount of pressure on business owners to maximise the value of their business to ensure a good price, he says.
“It’s purely supply and demand. It’s only going to be the businesses that are really solid that are going to attract a purchaser and that can demand top dollar.”
The need to attract buyers is intensified by the fact that one third of SME owners expect the sale of their business to be their primary source of retirement funding.
“Reliance on the sale of the business to fund retirement reflects the generally poor investment returns SME owners have received over the past few years. It may also be due to the need to sell external assets to help fund the business while things have been tough,” says Graham.
“Those figures are extremely concerning as it means business owners are really putting all of their eggs in one basket.”
RSM Bird Cameron shares five ways business owners can avoid getting caught out by the sales boom.
- Maximise the sale value of the business by planning early – at least three years prior to exit.
- Be clear on who is likely to buy the business. Groom it accordingly so that it is attractive to potential buyer’s criteria.
- Obtain a current valuation of the business to identify possible funding gaps to meet your income requirements in retirement.
- If you plan to pass the business on to family develop a “family constitution” or “charter”, which clearly lays out the rules of how the business is owned, managed and operated.
- Be aware of tax concessions available and build a tax strategy into the five-year business plan. Some concessions are very generous and will support funding retirement.
